Q&A: what's going to change and who it will benefit

Thousands of women who stayed at home to look after their children will be able to receive a full state pension under a top-up payment scheme, the Government announced today.

Around half a million people who failed to pay enough National Insurance (NI) contributions will benefit from the policy. The one-off payment plan will boost the retirement income of a generation of older women who stayed at home to look after children or care for sick relatives

Up to 555,000 people could benefit from the policy change, which will allow them to make up for missed NI contributions, according to the Department for Work and Pensions.

Only around a third of women reaching pension age qualify for a full basic state pension. Under the current system, people can buy back the previous six years of missed NI contributions.

But today, James Purnell, the Pensions Secretary, announced an amendment to the new Pensions Bill which will allow women to buy back up to six more years.

The move marks a change of heart for the Government, which last year overturned an amendment to the Pensions Bill designed to give people the opportunity to buy back extra years of missed contributions.

Mr Purnell said: “The Pensions Bill will transform pension provision and finally bring equality for women and carers so that by 2010 around 75 per cent of women reaching state pension age will be entitled to a full basic state pension, rising to 90 per cent by 2025, compared to around 35 per cent today.

“This is fair, affordable and straightforward and it will give more people the chance of a secure future to look forward to in retirement.”

The policy will apply to both men and women who reach state pension age between April 5 2008 and April 5 2015 and already have 20 years on their NI record, but in practice women will make up around 90 per cent of those who will benefit, the Department for Work and Pensions (DWP) said.

Ros Altmannm, spokeswoman of the Pensions Action Group, said that it cost about £400 to purchase a missing year of NI contributions. “The idea is the cost of buying years’ worth of extra pension is much less than the value of the extra pension you will get from a normal period of retirement,” she said.

But she warned that women should take advice before committing money, as a sizeable proportion of those on low and middle incomes will anyway be entitled to £130 a week in state pension under the pension credit.

She added: “Obviously, some women will say ‘Why do I have to buy it, why don’t I just get it as an entitlement?’ Some women could be fearful that if they are not well and die quickly they won’t get the value.”

Dr Altmann said it would be better to reform the whole state pension system so that it is not dependent on payment of National Insurance contributions during a working life.

A spokesman for Age Concern said: “We are absolutely thrilled that the Government has listened to our calls and intends to change the rules on buying additional National Insurance contributions - a decision which will enable thousands of older women to build up a better retirement income.

“The Government should be congratulated for finally delivering a fairer deal for women and carers.”

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